Diversified Energy Share Discussion Threads

[scrwal] 08/10/2021 14:21

I suppose it's a bit swings and roundabouts really - pay much more for unhedged assets or get them cheaper if hedged at a lower rate.

[fardels bear] 08/10/2021 14:13

I meant it was better to buy assets that were unhedged because then you have the opportunity to hedge at current prices rather than buying assets that already been hedged at lower prices.

[sunbed44] 08/10/2021 14:11

But youd then need to hedge as gas prices could go down. Very unlikely I agree but the tiff between the US and Russia is worth keeping an eye on. And as DEC are VERY risk averse, I guess they would edge any new gas production no matter what the price.

[fardels bear] 08/10/2021 13:27

You could argue that any deal that involves completely unhedged assets with the price of gas as it is now, is a good deal.

[scrwal] 08/10/2021 12:44

The main aspect of the deal is that they can now heavily hedge a complete new income stream which is why they are happy with it even though the production and reserves are much lower on a pro rata $ price paid than the original Central acquisitions.

As regards any placing I would prefer it to be linked to a Oaktrees deal but with a smaller discount - not that I could take advantage of it or even a rights issue but that is because I doubled up on the last dip at just under 100p.

[redtom1] 08/10/2021 10:40

Lab305, the life of assets acquired may vary but the underlying financial risk reducing principles still stand. They hedge a significant amount of future income (going out 10 years+) to ensure steady cashflow to cover running costs, capital repayments, dividends and for future reinvestment. I don't believe that this deal is any different. This is another accretive deal that will be significantly hedged to create another set of 'boring' cash generating wells.

[lab305] 08/10/2021 09:40

redtom1 hang on a minute. Quoting the "DEC business model" is a bit rich. They seem to have deserted that along with the name DGOC. What happened to "conventional, long life, low decline" assets ? Probably around 17% decline rate on this latest purchase in the first year and conventional ?

[redtom1] 08/10/2021 09:19

I have to agree with Scrwal in that I can't see a placing not happening (excuse the double negatives). As he states, a $2bn market cap is still 50% away and a 50p+ increase in the share price in the next 6-9 months seems unlikely.
Randy has quoted the $2bn+ amount so presumably that is the magic number they want/need to make a US listing effective. To do it in one chunk means raising £400m+ ($550m) which is quite dilutive so I can only imagine it would tie in with a much bigger accretive acquisition with Oaktree. Presumably a rights issue would be much more accepting than a placing?
The Capital Markets Day meeting should be very interesting now.

[redtom1] 08/10/2021 08:59

LOTM,

Yet again you're displaying total ignorance of the DEC business model.

Quote:
"...which leaves them with little choice but to lock in its value by hedging.."

Locking in value by hedging is the fundamental underlying principle of their business model.

[spangle93] 08/10/2021 08:33

Not sure whether it's because of the nature of these wells (e.g. horizontal wells are now the preferred development method) or general costs, but the quoted retirement cost per well is $30-$40k/well, rather than the $25k which I thought was the case.

A couple of years ago there was a stouch following an activist piece based on DEC underquoting what the retirement cost would end up as.

The good (?) news is that the life of these wells may exceed mine, so perhaps it's a non-issue

[fardels bear] 08/10/2021 07:19

Yet another Johnny come knocking, I see.

[gary1966] 08/10/2021 06:29

LOTM,

Look at the Appalachia case study though and what they have done to the cost price there. Do you not think they will do exactly the same in the central region? I know where I would place my money.

[last of the mohicans] 08/10/2021 00:22

Oh my goodness, they've had to work hard to make this look good.

Margin has risen from 54% to 56% only because the existing assets margin is the one in place on 30th July using strip prices on that date.

To get to the 56% figure they've had to use the strip price as of 3rd Oct. (and we all know there is a considerable difference between those prices graph's)

This is an expensive purchase for sure, which leaves them with little choice but to lock in its value by hedging otherwise it could quickly turn into a pig in a poke if gas prices went south (and while I don't think that is going to happen anytime soon, it will happen within the lifetime of these assets) -

-------------------------------------------------------

Very bizarre, they acquired 390,000 acres but only 660 PDP's, so is there significant upside potential on the acreage has to be the big question ?
If not then why would you want to hold so many acres that are unproductive & cost you money each year to retain them.

LOTM

[bountyhunter] 07/10/2021 18:17

Thanks for posting those notes Plutonium, that is great news re hedging, i.e.

* It was unhedged, but they have now hedged 50% of current year production and will be hedging 50% of near term production by December.

* They are starting to hedge 2024 to lock in high prices

I can see the share price being a lot higher than where we are today before too long.

[gary1966] 07/10/2021 18:13

Dividend increase within the next couple of quarters flagged up in last minute of the audio as a result of increased cash flow, so get ready to rework your yield calculations. Strengthening $ won't do us any harm either.

[gary1966] 07/10/2021 17:37

I see the US took us higher again and another nice UT.

[scrwal] 07/10/2021 16:30

The company is very well run but a placing is inevitable for the following reasons:
1) If the company wants to utilise the entire Oaktrees funding it doesn't have sufficient cash and credit to do so, and/or
2) Rusty wants a US quoting for the company with a value of $2bn and if there is no rerating then a placing has to happen.

We are probably all happy with the yield as well as the current capital growth. It's just that in the short/medium term the stated management objectives will more than likely result in a placing but the size of it is unknown.

[plutonian] 07/10/2021 16:24

The main takeaways from the conference call for me are:

* They have got these assets really cheaply as the industry is focusing on capital allocation and not profit level at the current elevated prices.

* It was unhedged, but they have now hedged 50% of current year production and will be hedging 50% of near term production by December.

* They are starting to hedge 2024 to lock in high prices as supply can be quickly increased from fracked wells at this price.

* They have now reached their target debt ratio, so further acquisitions may well involve a placing.

[sunbed44] 07/10/2021 16:12

Any upward pressure on price is always good for sentiment even if we are quite heavily hedged. I see talk of placing on here but I can not see it myself with the way the company is so impressively structured. So long as the current dividend is maintained at current levels I dont give a hoot. Should 11% (of 110p) continue to be paid and share price remain constant, if reinvested, your capital invested doubles every 10.25 years. Ill take that all day long here and look to other shares for my capital growth such as SAVE WEN TXP and ZPHR

[swallowsflysouth] 07/10/2021 16:03

Gas expected to increase again in Europe by a large amount next year, don't know how that will affect this company if at all.
They have a lot of big investors, guess they like the way the company is going, the divi and the way gas is going, i upped my stake accordingly to-day.

[scrwal] 07/10/2021 14:47

Gary1966
Ideally for us a re-rating would be very nice but it hasn't happened yet when perhaps now would have been the best time for it to happen.
I still think the market is expecting some form of placing to be made sometime and probably at a discount similar to the last one which didn't seem to go down that well.

[aleman] 07/10/2021 14:39

Are there any updated forecasts out there? Proforma 2020 EBITDA for the company and acquisitions is $515m. 2022 could be higher with recent rise in both spot and futures, yet the consensus is still only $371m. Is well attrition really going to be that high? I'd like to see some new forecasts.

[gary1966] 07/10/2021 14:37

So it isn't possible for the share price to have a re-rating to take the market cap to $2bln scrwal? Around £1.73ps with exchange rate of $1.36.

[scrwal] 07/10/2021 14:23

If Rusty wants to launch on the US exchange the only way he gets to a $2bn valuation is by means of a prior share placing.

[gary1966] 07/10/2021 14:10

Nope because the last fundraising gave them quite a bit of headroom and this purchase is leverage enhancing.

Syndicate of banks seem to be happy to increase credit lines because of hedging that is taken out to ensure loans repaid.